Lynas shares rally on Japanese supply deal

Shares in
Lynas Corp
rallied another 7 per cent in early trade on Thursday after the rare earths company signed a strategic alliance with Japanese trading house Sojitz Corp that will underpin a $US250 million expansion of its Mt Weld project in Western Australia and Malaysia.

The stock, which has moved into the S&P/ASX 100 index, was trading 10.5¢ higher at $1.635 at about 11.15am AEST. It follows a 10.5 per cent gain on Wednesday amid reports of the deal, which wasn’t announced until after the market closed.

Lynas’s agreement with Sojitz, will cover the supply and exclusive distribution of at least 8000 tonnes of rare earths a year over 10 years into Japan, as well as the financing of up to $US250 million to accelerate Mt Weld’s expansion to 22,000 tonnes a year by 2012. Sojitz intends to seek financial support from state-owned Japan Oil, Gas and Metals National Corporation (JOGMEC).

Lynas executive chairman
Nick Curtis
said the expansion would most likely be debt funded but possibly include some equity in the company.

“The structure of the financing is a matter of negotiation," Mr Curtis said. “We certainly see it as very substantially debt, but we don’t exclude the possibility of some equity in the package."

Deutsche Bank noted that while the announcement of an alliance might appear premature given Lynas and Sojitz now have to secure funding for the expansion, it was necessary to allow them to jointly market rare earths products to end users in Japan.

“Securing funding from Sojitz would alleviate any financial concerns and prevent the company from requiring debt or an equity raising," Deutsche Bank said. The investment bank has a “buy" on Lynas and a share price target of $1.80.

Mr Curtis said Lynas would work with Japanese customers alongside Sojitz, to ensure the company could adapt its product and anticipate customer needs.